- Decision
- Maintain
- Rate change
- 0 bps
- base rate
- 2.5%
The Monetary Policy Board of the Bank of Korea on 23 October kept the Base Rate at 2.50 %, concluding that stable 2 % inflation and a continuing but still-uncertain recovery—driven by consumption and resilient semiconductor exports—justify a pause while financial-stability risks from rising Seoul housing prices, household debt trends and heightened KRW volatility are assessed. After trimming the rate by a cumulative 50 bp in February and May, the Board has since held policy steady. No operational changes were made to the inter-meeting target, and liquidity settings were left untouched. September headline and core CPI stood at 2.1 % and 2.0 %, with both measures expected to stay near 2 % in 2025-26; GDP growth remains in line with August projections of 0.9 % this year and 1.6 % next, despite ongoing weakness in construction and manufacturing employment. The KRW has slipped to the low 1,400/USD range amid tariff-related uncertainty, while bond yields have firmed and equities are buoyed by semiconductor optimism; household loan growth has moderated even as Seoul-area housing prices and transactions quicken. Externally, the Bank flags a mild global slowdown, lower US Treasury yields and diverging inflation paths as new US tariffs bite, with future conditions hinging on US-China trade talks and major-economy policy shifts. Maintaining its “rate-cut stance”, the Board will decide the timing and scale of any further easing after evaluating incoming data; one member favoured a 25 bp cut.
Rate evolution
Since late May 2025, the Bank of Korea lowered the Base Rate by 25 basis points to 2.50% and held it there through May 2026, moving from an initial easing step driven by a sharp growth downgrade, weak domestic demand and slower exports to an extended pause as inflation stayed around 2% and the Board continued to caution about household debt and foreign exchange volatility. As consumption and exports improved, helped by semiconductors and fiscal support, it for a time retained an easing bias but increasingly emphasised housing prices in Seoul and its surrounding areas, household debt, exchange-rate volatility and inflation running somewhat above earlier forecasts, shifting from a rate-cut stance to a data-dependent hold.
In the most recent decisions, stronger-than-expected growth and inflation near target kept policy unchanged in January and February 2026, and the April 2026 hold was framed around the Middle East war as a supply shock that could lift inflation while weakening growth. The Board again left the Base Rate at 2.50% in May 2026 even as it raised its 2026 growth forecast to 2.6% from 2.0% and its consumer price inflation and core inflation forecasts to 2.7% and 2.4% from 2.2% and 2.1%, respectively, citing increased inflationary pressure from the Middle East war, stronger exports, semiconductor-led investment, favourable consumption and financial stability risks, but judging that uncertainty around the conflict and its spillovers warranted staying on hold. On July 16, 2026, the Bank of Korea raised the Base Rate by 25 basis points to 2.75%, judging that growth had strengthened further on exports and investment, inflation was likely to remain above target for a considerable time and financial stability risks persisted, noting that 2026 growth was likely to considerably exceed the May forecast of 2.6% and that June consumer price inflation rose to 3.2% while core inflation held at 2.5%, and signalling a stance consistent with further rate hikes. On August 27, 2026, it raised the Base Rate by another 25 basis points to 3.00%, citing stronger-than-expected growth supported by strong exports and a recovery in domestic demand, inflation expected to remain above target for a considerable time and continued financial stability risks, as it raised its growth forecasts for 2026 and 2027 to 3.3% and 2.9%, kept its consumer price inflation forecasts at 2.7% and 2.3%, and lifted its core inflation forecasts to 2.5% for both years while signalling that the timing and pace of further increases would depend on inflation, domestic economic trends and financial stability.